News on Wellness

Humana ACOs, Membership, Buybacks Show Promise

HumanaAccording to a new analyst report, Humana’s practical capital management initiatives, which focus on growth through Accountable Care Organizations (ACO) but also membership expansion, looks very promising. However, one concern in particular is the company’s weak financial position and climbing expenses.

The second quarter earnings for Humana line up with the Zacks Consensus Estimate even though they were lower than last year in the same quarter. This decline was due in part to healthcare exchange investments, state-based contracts, and an increase in the cost of specialty drugs, specifically relating to a new Hepatitis C treatment.

A big part of the company’s revenue comes from Humana’s Medicare business and because of collaborations with Medicare, membership numbers have increased significantly. State-based Medicaid membership has also climbed due to the addition of contracts with Kentucky Medicaid, Florida TANF, and Florida LTSS.

Humana started offering services in Illinois the first of the year, followed by Virginia, which together, bolstered the Retail segment of membership for Individual Medicare Advantage. The increased memberships have made it possible for Humana to put plans in motion to provide HMOs in nearly 65 new countries by next year.

Also in line with Humana’s objective to offer medical members affordable and high quality care were additional Accountable Care agreements to include the UC San Diego Health System, Tenet Healthcare Corp., Health Choice Preferred Network, Nebraska Health network, and Iora Health, as well as a partnership with CoverMyMeds.

Overall, executives with Humana believe the strong capital management initiatives will boost shareholder return. Just this month, a $2 billion share repurchase program was approved by the company and with credit rating agencies, Humana scores well.

While there have been a number of positive things pertaining to Humana health insurance programs, the company has experienced higher than expected expenses to increases in costs for operating, depreciation, and amortization. Into the upcoming period, analysts feel this trend will continue, considering the higher than normal costs of distribution and commissions’ increase.

In addition, the higher cost trends as they relate to Hepatitis C drugs will probably cause an increase in overall expense for all of 2014. Humana is part of a very competitive industry and as such, they face incredible pricing pressure from peers, particularly Blue Cross and Blue Shield.

As far as the Health Care Reform Law, Humana needs to pay a health insurance industry fee, with a payment expected to incur in 2014 of $560 million. By 2015, Humana anticipates this fee will increase by a whopping 41%.

There are also funding changes in 2015 relating to the Medicare Advantage, based on medical cost trend assumptions provided by the Centre for Medicare and Medicaid Services (CMS). Along with an increase in the industry fee, Humana expects a 2% reduction in Medicare advantage funding.

Humana has also seen an increase over the past few years in capital expenditures, which rose during the first half of this year. Then, operating cash flow timings are being adversely affected because of the effect of the commercial risk adjustment, reinsurance provisions, and risk corridor. As a result, a decline of operating cash flow is expected year after year, to include all of 2014.

Currently, Humana holds the number three spot on Zacks Rank, which is good because the stocks with higher rankings associated with healthcare services, are more appealing.

Leave a Reply

Your email address will not be published. Required fields are marked *